Business and earnings development in the Aurubis Group
The uncertainties from the Aurubis Group’s overall economic and market environment will continue to accompany our business activities in fiscal year 2015/16 as well. Current insights indicate that we will experience varying developments in the Business Units (BUs):
In BU Primary Copper, we anticipate good continued availability of copper concentrates, which will allow for a good supply with high treatment and refining charges and thus establish the basis for a satisfactory utilization of our smelting capacities at all of the sites.
We will carry out a large-scale shutdown of primary copper and sulfuric acid production at our site in Pirdop (Bulgaria) in April/May 2016. There will be a limited loss of production due to the 50-day shutdown. The work will nevertheless benefit from the experience gained from the comparable project in Hamburg. The scope of the shutdown is also smaller since the Pirdop site doesn’t have its own precious metal production. The capital expenditure costs are expected to be € 44 million and the strain on earnings before taxes will be around € 25 million.
Additional short-term operational shutdowns for maintenance work are scheduled for other facilities and equipment in the Group. If there are no unexpected disruptions, e.g. in the process technology, due to unpredictable incidents or events at our supplier companies, it can be assumed that we will be able to achieve good throughputs once again.
The media reporting about the concentrate markets referred to the increasingly complex material composition of the concentrates again. This was confirmed during reporting year 2014/15 and is a unique challenge for us. We have actively addressed this development and want to adjust our processing methods to it even more strongly along the entire supply chain. Furthermore, we are still working on tapping cost reduction potential to improve the situation in international competition.
In contrast to the copper concentrate business, sulfuric acid sales depend on more short-term developments. The contracts therefore have much shorter terms. At the beginning of the new fiscal year, there was pressure on the sulfuric acid prices due to a supply surplus. There is no recognizable improvement at the moment.
This also applies to the copper scrap supply and the corresponding refining charges. The available volumes have been weak since early October 2015 and the market conditions are accordingly unsatisfactory.
In BU Copper Products we deal with markets that vary considerably:
The course for cathode sales is currently being set for calendar year 2016. Aurubis reduced its cathode premium for European customers from US$ 110/t to US$ 92/t and therefore accounts for customer demand for annual contracts, which is expected to be restrained.
Negotiations for 2016 annual contracts are currently underway in the product business. Ongoing uncertainties in the global economy and in Europe’s economic development are reflected in our customers’ orders. It is still too early for concrete statements about final volumes. We nevertheless anticipate satisfactory capacity utilization in the new fiscal year.
Good demand can be expected for wire rod overall, which we primarily sell in Central Europe. The outlook in the final demand sectors supports this expectation from the current perspective. The developments in the current negotiations for 2016 annual contracts remain to be seen.
The overall assessment of the market situation for copper shapes varies. The trend in this area continues to move towards high-quality specialty products, which are increasingly requested in unique dimensions. Simpler standard shapes for the construction industry and basic machine applications have little growth potential and are subject to stagnation.
We anticipate slight growth in the European market for flat rolled products, especially in the connector segment. We expect demand growth to extend beyond market growth owing to quality and performance improvements. In North America we expect to balance out some of the business volume that declined in fiscal year 2014/15 in a largely unchanged market environment.
The market trend in Asia is difficult to assess, particularly due to the uncertain growth forecasts for China. We don’t anticipate any specific momentum for our business from this area.
The copper scrap recycling business is oriented to the short term and can change very quickly. It is sensitive to the copper price but also to metal traders’ collection and delivery tendencies, which include other metals. As a result, the tight market situation is not likely to change much in the near future, especially since seasonal influences will take effect at the end of the year. Existing contracts and inventories are able to cushion the currently low material availability on the market. However, a reliable overall assessment of the future copper scrap supply can’t be provided at the moment. Just as in BU Primary Copper, routine maintenance shutdowns must be taken into account. For complex raw materials in particular, such as electronic scrap and industrial residues, we want to continue expanding our new recycling approach, which includes addressing product customers more.
The availability of industrial residues also depends on the overall economic trend. This is viewed with confidence in Europe and could be reflected positively in the supply.
Overall, there could be quarterly differences as in the previous years. This is mainly due to seasonal factors but could also be caused by disruptions in equipment or operating processes. The business performance of the first quarter of a fiscal year in particular is shaped by special features related to the period, including reduced customer orders or changes in raw material deliveries.
The influences from European and German energy and environmental policy, which are important for us, can’t be forecast. In the first quarter of the new fiscal year, the European Commission published a position paper about the topic of the circular economy in the EU, which will make its way to the European Parliament and the 28 member states. This issue is related to one of Aurubis’ main areas of expertise and copper’s key product benefit. Aurubis will assess the opportunities and risks of the intended regulations and support the political decision-making process.
The future development and forecast of Aurubis AG coincides with the general statement on the Aurubis Group.